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September 16, 2004.

FORTIS, INC., Plaintiff,
U.S., Defendant.

The opinion of the court was delivered by: JOHN KOELTL, District Judge


The plaintiff, Fortis, Inc. ("Fortis"), brought this action to obtain a refund from the Internal Revenue Service ("IRS") on excise taxes that Fortis had remitted for certain long-distance telephone service. The primary issue is whether the definition of taxable "toll telephone service" in 26 U.S.C. § 4252(b) (1) includes long-distance service where charges are based on the elapsed transmission time of a call but not the distance the call travels. Fortis has filed a motion for summary judgment seeking judgment in its favor on the liability of the Government on Fortis's claim to the refund. The Government opposes the motion and has filed a cross-motion for summary judgment dismissing the complaint on the grounds that the telephone service at issue falls within the definition in 26 U.S.C. § 4252(b) (1), or, in the alternative, falls within the other definitions of taxable telephone services in § 4252. I.

The standard for granting summary judgment is well established. Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Gallo v. Prudential Residential Servs. Ltd. P'ship, 22 F.3d 1219, 1223 (2d Cir. 1994). "The trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue-resolution." Gallo, 22 F.3d at 1224. The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate[s] the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323. The substantive law governing the case will identify those facts which are material and "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). If the moving party meets its burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ. P. 56(e). The nonmoving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993); see also Scotto v. Almenas, 143 F.3d 105, 114-15 (2d Cir. 1998).


  The undisputed facts with respect to the plaintiff's refund claim are as follows.*fn1 From October 1, 1998 through March 31, 2002, Fortis purchased from AT&T inbound and outbound international and domestic interstate long distance service and intrastate long distance service in the states of Georgia, Minnesota, Missouri, New York, and Wisconsin. (Pl.'s Rule 56.1 Statement of Undisputed Facts ("Pl.'s Rule 56.1 Stmt.") ¶ 2.) The terms of Fortis's inbound and outbound international and domestic long distance service were governed by various "contract tariffs" and AT&T's interstate tariffs. (See id. ¶¶ 3-7 & Exs. 1a, 2-5.) Fortis's intrastate service was purchased pursuant to AT&T's Custom Network Services Tariffs filed with the applicable state regulatory authorities. (Id. ¶ 8.)

  Under the rate schedules applicable to Fortis's long distance service under the tariffs, with the exception of calls made to and from Mexico, the charge for each call was based on the call's duration, or elapsed time. (See id. ¶ 9; see, e.g., Contract Tariff No. 13497, § 7.A, attached at id. Ex. 4.) The rate schedules specified that the rates applied for all "Mileages & Bands," thus making the cost of a call independent of the distance the call travels. (Id.) AT&T collected from Fortis federal excise taxes on the services provided to Fortis and was legally obligated to remit those taxes to the IRS and report the taxes paid each quarter on Form 720. (Id. ¶¶ 13-14.) On February 22, 2002, Fortis timely filed claims for a refund of $392,813.82 representing the aggregate amount of federal excise taxes Fortis paid on the services from October 1, 1998 through September 30, 2001. On October 25, 2002, Fortis timely filed claims for a refund of $46,571.02 representing the aggregate amount of federal excise taxes Fortis paid on the services from October 1, 2001 through March 31, 2002. (Id. ¶¶ 15, 17.) The IRS has received these claims and has not acted on them. (Id. ¶¶ 16, 18.)

  The plaintiff has now filed a motion for partial summary judgment on the Government's liability to refund the plaintiff's taxes, although if the motion is granted, the amount of the refund would still need to be resolved. The Government has filed a cross-motion for summary judgment arguing that the judgment should be granted dismissing the complaint because the Government properly imposed and collected the telephone excise taxes at issue.


  The parties generally agree that there are no disputed issues of fact and that the motions primarily involve the same legal question of whether Fortis's service can be taxed under 26 U.S.C. §§ 4251 and 4252. Section 4251 of the Internal Revenue Code imposes a three-percent excise tax on amounts paid for "communications services," which includes (A) local telephone service, (B) toll telephone service, and (C) teletypewriter exchange service. 26 U.S.C. § 4251(a), (b) (1). Section 4252(b) defines "toll telephone service" as
(1) a telephonic quality communication for which (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication and (B) the charge is paid within the United States, and
(2) a service which entitles the subscriber, upon payment of a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time), to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radio telephone stations in a specified area which is outside the local telephone system area in which the station provided with this service is located.
26 U.S.C. § 4252(b).

  With predecessors dating to the nineteenth century, a federal excise tax on various telecommunications services has been in effect continuously from 1932 to the present.*fn2 Sections 4251 and 4252 were initially enacted in 1954 and amended in 1958, and Congress adopted the current definitions found in § 4252 in the Excise Tax Reduction Act of 1965, Pub.L. No. 89-44, § 302, 79 Stat. 136, 145-46 (the "1965 Act" or the "1965 amendments").*fn3 At that time, AT&T was the dominant long-distance carrier in the United States, and the definition of "toll telephone service" covered AT&T's two types of long-distance service: (1) "Message Telephone Service" ("MTS") charged callers for each call based on the time of day, duration of the call, and the distance traveled; and (2) "Wide Area Telephone Service" ("WATS") generally allowed subscribers, for a flat charge, to make unlimited calls within a defined area, sometimes limited as to the total elapsed time. (See Def.'s Rule 56.1 Stmt. ¶¶ 1-2 & Ex. A (Decl. of Alan Pearce ("Pearce Decl."), dated Nov. 17, 2003, at 3-5).) MTS rates were based on a system of "mileage bands," where, for example, a different rate would be charged for calls traveling 1-10 miles, 11-22 miles, 23-55 miles, 56-124 miles, and so forth. (See Def.'s Rule 56.1 Stmt ¶ 3; Pearce Decl. at 4.) In 1965 and the decades to follow, "MTS, plain old long distance service, was the largest, in terms of traffic volume and revenue levels, and the most publicly visible of the traditional telephone industry service offerings." (See Pearce Decl. at 5.)

  Between 1997 and 2000, however, AT&T and other long-distance carriers began to abandon the mileage-band system, due in part to competition with wireless carriers. (See Pearce Decl. at 10.) Now the dominant form of long-distance service involves a single interstate long-distance rate for the continental United States, although mileage bands remain in use in some states for intrastate long-distance service. (See id.; Def.'s Rule 56.1 Stmt. ¶¶ 4-5.) This shift in service has raised the current issue: Do services that are not distance-sensitive fall within 26 U.S.C. § 4252(b)(1), which defines "toll telephone service" as involving "a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication?" That is, to be taxable under § 4252(b)(1), do long-distance charges need to be based on both distance traveled and time elapsed, or merely one or other?

  Two district courts have recently addressed this same issue and have reached opposite conclusions. Compare Am. Bankers Ins. Group v. United States ("ABIG"), 308 F. Supp. 2d 1360 (S.D. Fla. 2004) (finding, based on purpose of §§ 4251 and 4252, that long distance service was taxable even though charges were based on time and not distance), with OfficeMax v. United States, 309 F. Supp. 2d 984 (N.D. Ohio 2004) (finding that, under plain meaning of § 4252(b)(1), charges had to vary with both distance and elapsed time to be taxable).*fn4 The arguments raised in those cases are substantially the same as in the current motions. In ABIG, the court recognized that the first question in interpreting § 4252(b) (1) is whether the phrase "varies in amount with distance and time" is ambiguous. The court found that "the statutory language is ambiguous because Congress could be using the conjunctive word `and' in this instance to mean `either or both of two alternatives,' that is, to mean where there is a toll charge which varies in amount with the distance or elapsed transmission time or both." ABIG, 308 F. Supp. 2d at 1365. Having found the statute ambiguous, the ABIG court examined extrinsic evidence of congressional intent, including the legislative history of the 1965 amendments. The court stated that "it is clear that the legislative intent was to impose an excise tax on all commercial local and long-distance telephone services, as well as on telegraph services." ABIG, 308 F. Supp. 2d at 1369. The ABIG court thus interpreted "distance and elapsed time" disjunctively to fulfill Congress's intent of taxing all long-distance services.

  The ABIG court also supported its conclusion with IRS Revenue Ruling 79-404, issued in 1979, which considered the application of § 4252 to ship-to-shore communications where callers were charged according to a per-minute rate that did not depend on the distance between the origin and destination of the call. See ABIG, 308 F. Supp. 2d at 1370-72, 1372 n. 14; see also Rev. Rul. 79-404, 1979-2 C.B. 382, 1979 WL 51192, 1979 IRB LEXIS 291.*fn5 The Ruling acknowledged:
Literally, the service provided in this case does not come within the definition of . . . "toll telephone service" as [it is] currently defined in section 4252 of the Code . . . because the charge for such service does not vary with distance and therefore does not meet the requirement of section 4252(b) (1).
Rev. Rul. 79-404, 1979 IRB LEXIS 291, at *3-*4. Nonetheless, the IRS stated "that a statute may be given an interpretation other than that which follows from its literal language where such interpretation is required in order to comport with the legislative intent." Id. at *4; see also id. at *5 (citing United States v. Am. Trucking Ass'n, 310 U.S. 534 (1940), and Corn Prods. Refining Co. v. Comm'r, 350 U.S. 46 (1955)). The IRS concluded that the ship-to-shore communications were taxable — even though the amounts varied in elapsed time only — because the "intent of the statute [in taxing long-distance service] would be frustrated if a new type of service otherwise within such intent were held to be nontaxable merely because charges for it are determined in a manner which is not within the literal language of the statute." Id. at *6-*7. The ABIG court afforded the Ruling "great weight because it expresses a longstanding IRS interpretation of § 4252(b)(1), it is entirely reasonable, and it is consistent with the intent of Congress to tax commercial long-distance telephone services." ABIG, 308 F. Supp. 2d at 1372. The court found that subsequent congressional reenactment of § 4252 further supported its view of the statute. See id. at 1372-73. The court found that even if Congress was unaware of the Ruling itself, the legislative histories of the 1986 reenactment and a 1997 amendment indicated an intent to tax all long-distance telephone service. See id. at 1373.
  In OfficeMax, the district court for the Northern District of Ohio reached the opposite conclusion, finding that § 4252(b) (1) unambiguously defines toll service as involving charges that vary in amount with both distance and elapsed time. OfficeMax, 309 F. Supp. 2d at 993. The OfficeMax court expressly addressed the reasoning in ABIG but concluded:
Although the present-day Congress might wish to tax long-distance service as it is currently charged (i.e., on the basis of elapsed transmission time only), this Court believes the relevant inquiry is what Congress intended when it amended the statute in 1965. Given the fact that both distance and time influenced charges for long-distance service at that time, this Court feels compelled to conclude that the definition of that term is not ambiguous and that Congress' plain and unambiguous requirement that charges must vary by both distance and time should be given full effect. Id. at 995. The OfficeMax court also discussed in depth Revenue Ruling 79-404 and found that it was neither supported by the legislative history of the 1965 amendments, nor justified on the theory that a statute's literal language can be abandoned if contrary to congressional intent. See id. at 999-1000 (reviewing legislative history); id. at 1001-03 (criticizing Ruling's reliance on American Trucking and Corn Products and concluding that circumstances did not require departing from statute's plain language). The OfficeMax court further found that congressional approval of the Ruling could not be inferred from subsequent reenactment of the statute. See id. at 1003-05.
  In the current motions, the plaintiff and the defendant have taken positions on the application of 26 U.S.C. § 4252(b) (1) that are substantially similar to those taken by the courts in OfficeMax and ABIG, respectively. Fortis argues that the plain meaning of the provision requires that the long-distance toll charges at issue vary both in distance and time to be taxable. The Government argues that the Court should not apply the literal language of the statute and should instead defer to the Revenue Ruling and enforce the alleged congressional purpose of taxing all long-distance telephone service. A.

  "Interpretation of a statute must begin with the statute's language." Mallard v. United States District Court, 490 U.S. 296, 300 (1989); Saks v. Franklin Covey Co., 316 F.3d 337, 345 (2d Cir. 2003). To ascertain the plain meaning of a provision, the court should look to the language of the provision in light of the statutory scheme as a whole. See id. If the statutory terms are unambiguous, the inquiry generally ends there, and the statute is construed according to its plain meaning. See United States v. Gayle, 342 F.3d 89, 92 (2d Cir. 2003); Greenery Rehabilitation Group, Inc. v. Hammon, 150 F.3d 226, 231 (2d Cir. 1998). Where the text is ambiguous, the court may also consider the legislative history and the canons of statutory construction to resolve the ambiguity. See Greenery Rehabilitation Group, 150 F.3d at 231.

  The initial issue in this case involves the portion of § 4252(b)(1) that defines toll telephone service as "a telephonic quality communication for which (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication." 26 U.S.C. § 4252(b) (1). This Court agrees with the OfficeMax court that the meaning of the provision is plain: the amount of the toll charge must depend on both the distance and the elapsed time of the call. Under the long-distance service provided to Fortis, each call, except for those to and from Mexico, was charged based on the elapsed transmission time but without regard to the distance or mileage that the call traveled. The Government's position effectively eliminates "distance" from the statute, ...

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